Crucial information for emigrating South Africans is this: moving to another country and paying tax in a foreign domicile is not an automatic shift of tax residency, despite popular belief. Conversely, a full tax emigration may not be your best option at the time of emigration.
Find out here the key features of tax emigration, as well as of another alternative that provides more flexibility for those who are uncertain if they might return to South Africa in the future.
Tax emigration is the process of moving your money and other assets, such as investment portfolios and retirement annuities, out of South Africa to your new residence abroad. Now completed under the regulation of the South African Revenue Service (SARS), tax emigration replaces a process formerly known as ‘financial emigration’ under the South African Reserve Bank (SARB).
However, even if you have formally emigrated from South Africa, you can still be deemed a South African tax resident by SARS, based on the physical presence test. A tax emigration cannot be completed if you remain “ordinarily resident” in South Africa.
| SARS’ South African Tax Residency Tests | You are considered a South African Tax Resident if: |
| Ordinarily Resident Test | • Your usual or principal residence is in South Africa • South Africa is the country to which you would naturally return after travels • South Africa is your “real home” even if you live abroad for several years |
| Physical Presence Test | If you are not ordinarily resident but you were physically present in South Africa for ALL of the following: • 91+ days in total during the current tax year, and • 91+ days in total during each of the five preceding tax years, and • 915+ days in total during those five preceding tax years |
Because a physical emigration does not automatically result in a tax emigration, your financial emigration plan should include strategies to maintain tax compliance with SARS until you have officially completed the tax emigration with SARS.
Until you have received your SARS “Cease to be Tax Resident Certificate”, SARS will deem you a South African taxpayer temporarily aboard and liable to file returns and pay taxes on worldwide income to SARS. This can expose you to double taxation in both domiciles if you do not follow due process.
To formally end your tax obligation as a tax resident with SARS, you must complete the official tax emigration process.
Remember, however, this SARS process changes your tax status from resident to non-resident for tax purposes only. A tax emigration does not mean that you are relinquishing your South African residency, or right to it. Rather, it means that you are ordinarily resident in another country and no longer liable for taxation in South Africa on your worldwide income.
This process does not pertain to South African residents who work abroad, such as oil rig workers, as they might be absent from South Africa from many months in a year but still remain ordinarily resident here. For these taxpayers, different tax relief measures exist under South African tax law.
Key Features |
Financial Emigration |
Tax Emigration |
AIT – Application for International Transfer (via SARS – remittance of funds from SA to foreign domiciles) |
Process |
• Previously required SARB MP336(b) application
|
Must be a registered taxpayer |
• Application to SARS to move funds abroad |
Requirements |
• Must intend to never return to SA to reside |
• Must intend to never return to SA to reside |
• Non-residents must have proof of non-residence |
Citizenship & Residency |
• No longer a SA resident |
• Can remain a South African citizen and retain rights to abode |
• Application may be done either as a resident or non-resident |
Tax Status Impact |
• Does not automatically change tax residency |
• Absolves taxpayer from tax in South Africa on world-wide income |
• Compliance is enforced on both resident and non-resident taxpayers:
|
Asset Movement |
• Unrestricted access to repatriate assets offshore |
• No longer subject to the same exchange control restrictions as residents |
• Subject to SARS AIT approval whether resident or non-resident |
Tax Liabilities |
• Might still be liable for taxation in South Africa until a “Cease to be Resident” application is completed with SARS |
• Non-residents for tax purposes are still fully taxed on SA-sourced income/assets |
• Tax liability depends on established tax residency:
|
Tax Benefits |
• No definite tax benefits as financial emigration was not a tax process but a SARB asset transfer process |
• Foreign earnings not taxable in SA |
• Eliminates tax evasion by enforcing compliance on all repatriated funds |
Capital Gains |
• Capital gains tax triggered on worldwide assets at emigration – presented loopholes as SARS did not manage process |
• Capital gains tax triggered on worldwide assets at date of tax emigration and enforced by SARS for better fiscal management |
• Capital gains tax on worldwide assets is deferred for residents |
Future Flexibility |
• Tax residency may be completed after financial emigration and backdated to original financial emigration date |
• A return to South Africa as a South African tax resident after five years will require a tax emigration process with the foreign domicile |
• Subject to future tax and exchange control risk |
Future Risks |
• Unrealised South African tax liabilities for expats who have not formalised tax emigration with SARS |
• If you return within 5 years, SARS deems it failed emigration which will trigger SARS taxes on all worldwide earnings since departure |
• Subject to future tax and exchange control risk |
Recommended |
• SARB financial emigration process is replaced by SARS tax emigration |
• Mandatory for all emigrations after 1 March 2021 |
• Mandatory for all foreign fund/asset transfers |
Emigration can unlock great opportunities for South Africans who are highly sought-after in other countries, but navigating the complexities of asset relocations, compliance obligations and tax implications can be challenging – and expensive.
To ensure your emigration decisions align with your unique financial circumstances and aspirations, while maintaining compliance, it is highly recommended that you approach the financial and tax aspects of emigration with careful planning, supported by professional tax advice from a qualified expert with expertise in both South African and international tax laws.
About the authors
Michelle Veldon holds a BCom (Management Accounting) and a Post Graduate Diploma in Advanced Taxation and has more than 20 years of experience in taxes for South African expats, tax residency determinations, double tax agreements (DTA) and international revenue and tax advice and services.
With a BA Degree in Communications and as a former SAPOA Property Journalist of the Year, Monique Terrazas has 20+ years of experience of compiling relevant and insightful intelligence as an author, editor and content contributor for local and international organisations and publications across a range of industries.